“The future ain’t what it used to be.” famous quote by Yogi Berra
The closing of an early round of funding is certainly a milestone event in the evolution of any company, but after experiencing temporary euphoria, reality soon sets in. The extra capital, (while fending off the Ramen noodle diet) brings an added dynamic to your organization; you are now obligated to devote some of your time to communicating with and listening to investors. I don’t mean to simplify the paradigm, but here are three “musts” in that relationship:
Manage Investor Expectations
On your journey to getting funded, there was a great deal of information you shared with potential investors who are now your shareholders. Hopefully the financial projections, the milestones you planned to achieve and the “current state” of your company were honest and realistic, as they were a significant part of what set the expectations of your new partners.
For many entrepreneurs, it is a rude awakening that now, for the first time, there are other individuals to whom they have to report. Since most investors are passive, the only real information they will get is what you decide to share with them. In the early going, there is a real need for increased communication between you and your investors. Without a steady flow of data, an ugly “expectation” gap can form between how a company is performing and how investors think it is performing.
So start by outlining a basic communication plan showing how you will work together. You should be proactive in making sure they clearly understand the company’s current state and the critical issues you are facing. Relevant information allows you to paint a realistic picture and helps to manage your investors’ expectations.
Generate Timely Reports
Whereas in the past you may have not generated detailed monthly financial statements, investors in the early stages of a relationship will likely expect timely financial data from you. Thus, a new initiative should be to establish a more rigorous reporting of monthly financial and operating results; say 10 to15 days after the end of the month.
Also, many early stage companies are at the beginning of the revenue cycle, meaning their level of revenue most likely does not cover operating costs. A company’s “burn rate” has to be closely monitored and reported so investors understand the status of their investment, which is often meant to take a company through its developmental stage. Keeping track of the burn rate versus the cash available allows you and your investors to understand if and when a follow-on round of financing will be required.
Track Progress Relative to Milestones
Often, the most important information is how your organization is operating relative to milestones. Many owners tend to focus on financial parameters, while investors typically look for some measure of organizational progress. While financial success is usually a part of every investor’s expectations, other measures may be equally important and should be included in your periodic reporting.
If the expectation when you received funding was that your company would build out a management team, it is critical to communicate progress in this area. The status of candidates, progress toward expanding the team, and even upcoming interviews should all be communicated to the investors. If another milestone is to improve and quicken the pace of product development, give a clear picture of the current state of your product, a path of steps you hope to accomplish in terms of functionality and usability and your progress toward completion.
So congratulations on getting funded; let us rejoice and be glad. But please follow these simple post funding guidelines and you will have even more success if you need another round. Good luck.